Businesses are still struggling to get loans from banks, but we offer some tip

Like the Miracles sang in their 1960 hit, “you better shop around” if you’re seeking a business loan these days.

That’s the advice of the U.S. Small Business Administration’s regional director, but it’s also born out by a South Florida Business Journal analysis of SBA and commercial and industrial (C&I) loan statistics.

SBA District Director Francisco Marrero takes heart in the first two months of the agency’s fiscal year – October and November. Total loans in South Florida were up 111 percent, to 340 from 160 a year earlier.

“We’re certainly optimistic in that we have stopped going down and we have seen some increase in the activity,” Marrero said. “It’s still difficult out there. Florida banks are going through difficult times. A lot of them are having to deal with having reserves for losses. As you know, some of the Florida banks are among the worst in the nation in dealing with that crises.”

The region’s 50 largest banks cut their commercial and industrial loans by $532.60 million to $4.78 billion in the year ending Sept. 30, including a $167.79 million trim in the third quarter, a South Florida Business Journal analysis found.

As the list on Page 20 shows, SBA lending in the region is suffering mightily from curtailment by previous leader Bank of America, which dropped to 31 loans for the year from 568 the previous year. No. 2 Popular Small Business Capital (Banco Popular) dropped from 348 loans to 24.

The changes have prompted some loan officers to move around.

Michael A. Hershaft worked at Banco Popular and U.S. Bank, but is now an SBA development officer at Mercantile Bank, which formed an SBA division in November.

Some banks curtailed SBA lending after the secondary market for SBA loans “virtually disappeared” toward the end of 2008, he said. That meant lenders had to hold the SBA loans on their books – and some didn’t want to do that.

The market got a boost when federal stimulus efforts raised the SBA loan guarantee to 90 percent from 75 percent and waived some fees, he said. Unfortunately, stimulus funds recently ran out and the guarantee reverted back to 75 percent.

Hershaft and other SBA lenders hope Congress fixes that. Hershaft, who is based in Orlando, but works with Mercantile’s Bob Tighe in South Florida, said there’s hope that the limit on 7(a) loans, the SBA’s most popular, will be raised from $2 million to $5 million.

Liquid Capital

Another source of capital these days is factoring, but businesses that seek these types of funds need to show their customers are credit worthy, as well.

Coral Springs-based Liquid Capital is among the businesses that provide accounts receivable and purchase order financing.

“The benefit for our clients is, typically, they do not want to have debt on their balance sheet for one reason or another, so they come to us to exchange one asset, an accounts receivable, for cash,” principal Dennis Custage said.

The size of deals can range from $20,000 a month in invoices to $7 million.

The fees for its services vary widely, from 2 percent for a very high-volume, credit-worthy client to 5 percent on a lower-volume accounts receivable financing customer.

New banks in town

Professional Bank in Coral Gables is one of the lenders entering the SBA market.

Chief Lending Officer Maggie Leon said bank employees have just finished training and were recently looking at the first possible loans.

“First and foremost, we are relationship driven,” she said. “We don’t lend to anybody who just walks off the street. We want to establish a relationship.”

As the bank’s name might imply, Professional Bank targets doctors, CPAs and other small-business owners.

The bank opened at the worst point in the economic collapse, a week after Lehman Bros. went under, Leon said.

The bank has to be picky about loans, she indicated. “These days, people that have had excellent credit histories do default, just because they don’t have any business or can’t collect on the business they do have.”

Still, Professional Bank went from zero commercial and industrial loans a year ago to $6.93 million in the latest quarter.

“We have a can-do attitude,” Leon said. “That’s why we are looking at sources such as the SBA to bridge these times.”

Broward Bank of Commerce, which opened in January, grew from $1.05 million in commercial and industrial loans at the end of March to $12 million in September.

President and CEO Keith Costello is a veteran banker who has held positions at Bank of Florida, Great Florida Bank and City National Bank.

“We saw an opportunity coming – not that we were able to predict that things would be so difficult for small and medium-size businesses to get financing,” he said.

The bank’s average loan is about $1 million, but it has made some in the area of $250,000, he said.

“We have really found it has been wide open in terms of finding some very good businesses to lend to,” Costello said. “They are not being given good service or being taken care of by their existing relationship with their bank.”

It’s a benefit for Costello’s bank to be a new player compared with older banks that face regulatory pressure to shore up capital and pare down loan portfolios.

In some cases, banks with troubled balance sheets even abandoned good customers, he said.

It’s a problem Andy Cagnetta, president of Transworld Business Brokers, knows all too well as he tries to help people buy and sell their businesses.

“We haven’t really seen the credit markets open yet,” he said.

Year to date, his firm has had transactions involving seven SBA loans, compared with about 30 last year.

Buyers of businesses also used to go to their home equity lines of credit, he said. “That is still very dry. There’s just a lack of money out there and we haven’t seen it come back yet.”

Still, Miami-based banking analyst Ken Thomas sees competition in the C&I field. It’s the most profitable of all lending categories because borrowers usually have deposits at low rates and generate nice fees for banks.

BankUnited and JPMorgan Chase are two players to watch because they represent the rebirths of two S&Ls (the old BankUnited FSB and Washington Mutual) that are becoming a force in commercial lending, Thomas said.

BankUnited has $66 million in commercial loans as of Sept. 30, its report to the FDIC says. BankUnited, led by New York banker John Kanas, has acquired C&I lending talent from other banks, Thomas said.

Northern Trust, which Thomas pointed out is the most consistently profitable bank based in South Florida, led the region at $1.32 billion in commercial and industrial loans, basically unchanged from the previous September.

And, don’t forget this: “The biggest C&I lenders in the U.S. are the League of Trillionaires,” Thomas said.

That means Bank of America, Wells Fargo, Citigroup and JPMorgan Chase. All of them have extensive branch networks in South Florida. So, shopping around can often be accomplished by driving just a few blocks.